Official sales numbers were released today and median home prices were up 19% over last year, rising from $96,900 in May 2010 to $114,900 May 2011. Prices were down from April 2011 level of $118,900. Transaction volume fell slightly too, down 8% from last year. This is not surprising as inventory levels are down sharply from year ago levels.

We have been predicting all year prices would rise, which they have from $88,500 in January 2011. These prices increase are due to lower inventory, and lower priced properties at the bottom end of the spectrum. Median home sale prices are up 29.83% since January, but this doesn’t mean all homes have gone up nearly 30%. It simply means there are fewer homes available at the bottom end of the spectrum.

All through the foreclosure height it was not uncommon to find many $30,000-$50,000 homes in Lehigh acres, and a few in Cape Coral. Last year it became harder to find homes under $70,000 and this year it’s become difficult to find homes under the $90,000-$100,000 mark. When they do become available they are snatched up immediately, or they have significant repairs pending.

A typical $200,000 home, depending on where it is located, may have risen or fallen slightly; however we haven’t seen 30% price swings as the market has stabilized in many sub markets. These price increases are more a function of the definition of media, which is defined as half the sales under and half the sales over a given point. When the lower end disappears it doesn’t necessarily mean there is rise in the moderate to upward end, although it is also possible.

We feel this market will lead from the bottom up. We refer to it as the “Bunching Effect”, a term we came up with several years ago to describe how the real estate market works. The real estate market is not as efficient as the stock market where everyone can look up on the Big Board and see what the value is at any given second. In real estate, market reactions take time, and they don’t always move in unison. One segment may move, and when the market figures out there should be more separation between two segments, another segment will move. Two segments can become too “Bunched” together, and when the market realizes this, it reacts. It is not always done in real time second by second, but it does react just the same.

Buyers look at what they can buy at any given time and they make decisions. For instance, they may be looking in the $150,000 price range and see one home for $145,000 and a much nicer home in same neighborhood for $150,000. In their mind there should be more than a $5,000 difference, so either the $145,000 needs to come down or the $150,000 should be priced higher. There could be multiple offers on the $150,000 home and it may indeed go higher if enough buyers come to same conclusion at same time. If not, the next few homes that come on the market may figure it out. In any event, something has to give. This leads to upward pricing pressure on one or downward pricing pressure on the other until the market finds equilibrium, and so the process repeats itself day after day.

Our job is to watch the market and not focus on any one given sale, but look for trends in the cycle which would indicate movement. Markets can become “Bunched” and they can “Unbunch” This is a natural phenomenon and buyers and sellers can sometimes get too caught up in one sale or one listing on the market and rely on that data as a market trend, when in fact it may just be a single event.

We also need to keep in mind that anyone can list a property for any price. The seller determines the price, but the market determines the value, so be careful not to get caught up on what the neighbor down the street listed one house for.

The market will always speak to you if you’re willing to listen. Under pricing costs a seller equity, and over pricing insures property will sit and may take a lesser price down the road when the listing grows stale. Proper pricing is just as critical to a seller as proper offers are for a buyer. Failure on either end of the spectrum leads to disaster. An over priced home helps sell the competition, and a low ball offer helps another buyer purchase your 1st choice. The real question is, do you want to buy, or do you want to sell. And the answer is, objectively determine what the market really is and go from there.

Happy house hunting or house selling, and don’t be afraid to ask for help. The market is on the move, and figuring out your next move is half the fun.

Tune in and watch our June 2011 SW Florida Real Estate Market Update